FG Plans To Borrow Additional $2.8bn To Finance 2018 Budget

The federal government plans to borrow $2.8 billion offshore to finance its 2018 budget and would explore all options to lower costs, the Director General, Debt Management Office (DMO), Ms Patience Oniha, disclosed in an interview with Reuters Wednesday in Abuja.

The government, according to her, has laid out plans to borrow abroad even as interest rates are rising in the United States, raising fears that the country could pay a higher premium than its most recent debt sale in February.

The country, which left recession last year, approved a three-year plan in 2016 to borrow more from abroad so that 40 per cent of its loans would come from offshore to lower borrowing costs. It now has around 23 per cent of its debt from abroad, up from 16 per cent when it approved the plan.

The debt office has sent a request for a proposal to banks for an international bond offering, Reuters disclosed.

“We will explore all options, keeping in mind our twin objectives of extending the tenor of the debt stock and lowering costs,” Oniha said without giving details.

The National Assembly is, however, expected to approve the new borrowing plan.

Oniha in January said the DMO could tap capital markets or concessionary loans from the World Bank and would consider funding options after the 2018 budget had been approved.

President Muhammadu Buhari last week signed a record N9.12 trillion budget for 2018 into law, aimed at fostering growth in Nigeria before elections next February, in which he would seek a second term.

The Minister of Budget and National Planning, Senator Udoma Udo Udoma, while giving a breakdown of the budget last week, disclosed that the deficit was to be financed mainly by borrowing N1.643 trillion.

Growth rates in Nigeria have bounced back since the third quarter of 2016, when a recession, its first in 25 years, hit bottom.

It exited that contraction last year, largely due to higher oil prices, with the country relying on crude sales for much of its revenue.

However, growth slowed in the first quarter of 2018 for the first time since pulling out of recession as its non-oil sector struggled.

Nigeria raised $2.5 billion through a dual-tranche Eurobond offering in February, selling a 12-year note at 7.1 per cent to raise $1.25 billion and a 20-year tranche at 7.7 per cent.

The February deal was the second international bond sale in less than three months, after the debt office raised $3 billion through an offering of 10- and 30- year bonds in November.

This pushed the country’s total public debt higher as it increased by 4.52 per cent in the first three months of 2018. Precisely, the public debt increased from N21.73 trillion in December 2017 to N22.71 trillion at the end of the first quarter of 2018.

“The debt figures show that the implementation of the debt management strategy, which entails an increase in the external debt stock through new external borrowing and the substitution of high-cost domestic debt with low-cost external debt, is achieving the desired results in several areas.

“Some of these areas are: the share of the external debt stock in the total public debt, which rose to 30 per cent as of March 31, 2018, compared to 17 per cent in 2015, 20 per cent in 2016 and 27 per cent in 2017; a decline in market interest rates from 13 to 14 per cent per annum in December 2017, to 11 to 13 per cent per annum in the first quarter of 2018 due to the redemption of N279.67 billion of Nigerian Treasury Bills using some of the proceeds of the $2.5 billion Eurobond issued in February 2018,” the DMO had explained.